Archive for July 11th, 2017

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Calendar dates catch up with banking – Ukraine

July 11, 2017

Politics and policy by way of legislation or regulation, particularly that which is deeply unpopular, has a habit of making its way through the Verkhovna Rada with a deferred effective date purely for the purposes political expediency.  Naturally that is to mitigate the initial backlash be it societal or business, and/or to provide subsequent time to amend such legislation (in whole or piecemeal) to the extent of neutering it to the point of impotency as time ticks by prior to effective implementation date.

As such legislation can be passed today that will only come into effect 6 months, one year, or even three years hence.

However there are times when legislation and/or decrees are passed with the best of intentions, providing reasonable time frames for those directly affected to fully comply.

The 11th July 2017 is one such date as far as the Ukrainian banking sector is concerned.  As part of an on-going and entirely necessary cleanup and strengthening of the Ukrainian banking industry, the NBU over the past few years has rid the domestic market of some seriously questionable banking entities whilst continuing to insist on a far more robust capitalisation of those banks that remain.  This has been, on balance, accomplished quite reasonably over recent years by forewarning expected capitalisation benchmarks rather than simply imposing truly huge recapitalisation figures in a single NBU Resolution.

In April 2016 the NBU, via Resolution 242, made explicitly clear that by 11th July 2017 all banks would have to hold at least UAH 200 million in registered capital.  In short bank owners and/or shareholders were given more than one year to raise and register that capital.

To be fair there are still far too many banks active within the domestic banking market, but for as long as the market participants meet the NBU requirements per Resolutions issued and legislative requirements, it is for a competitive marketplace to reduce that number to one that is much more sensible.

As of 12th July it appears there will be a number of banks that will not have raised and registered the required UAH 200 million capital.

Some are very close to that figure and others some way off.  For example MetaBank is less than UAH 10 million from that figure and within the next few days will probably meet the requirements.  At the other end of the scale, Kredit Optima Bank is some UAH 80 million short of the required capitalisation.

At the time of writing, with several hours to go (and no doubt with a few days grace to be added), it seems that Motor Bank, Center Bank, the aforementioned Kredit Optima, UBRR (which may well get a capital injection from China imminently), Ukrstroyinvestbank, Akkord Bank, Sky Bank, Hephaestus, Policom Bank, Ukrainsky Capital, Gefest, Alpri Bank, Aboks Bank, Portal, Alt Bank, Sich (likely to also see an imminent capitalisation), Kommercial Industrial Bank, Paschetniy Center, AP Bank, Vernym Bank and the aforementioned MetaBank remain under-capitalised by way of the registered capital (rather than capital held).

These transgressions however do not mean immediate closure and/or administration.  It will mean that the NBU will recognise these banks as being on the verge of problematic and require a strictly monitored action plan for compliance over the next 6 months.  In all likelihood, only in mid-January 2018, when all “reasonableness” has been seen to be exhausted by the NBU, would forced administration begin – unless it becomes completely clear that there is simply no way compliance can or will be achieved before.

The outcome of all of this?  In all likelihood the NBU will see the majority of these banks meet the requirements of Resolution 242 well before the year end, and many very soon indeed – joining the overly-congested marketplace of a hundred and more that have already met this requirement.

A most, a couple more banks will disappear by mid-January 2018.

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